Certified Production & Operations Manager (POM) Practice Exam

For fixed costs of $2,000, revenue per unit of $2, and variable cost per unit of $1.60, what is the break-even quantity?

1. 1250

2. 1000

3. 2250

4. 5000

The correct answer is: 5000

To determine the break-even quantity, you need to find out how many units must be sold to cover both fixed and variable costs without making a profit or loss. The break-even point can be calculated using the following formula: Break-even quantity = Fixed costs / (Revenue per unit - Variable cost per unit) In this scenario: - Fixed costs are $2,000 - Revenue per unit is $2 - Variable cost per unit is $1.60 First, calculate the contribution margin per unit, which is the difference between the revenue per unit and the variable cost per unit: Contribution margin per unit = Revenue per unit - Variable cost per unit Contribution margin per unit = $2 - $1.60 = $0.40 Now, using the break-even formula: Break-even quantity = Fixed costs / Contribution margin per unit Break-even quantity = $2,000 / $0.40 Break-even quantity = 5,000 units This means that you need to sell 5,000 units to cover all fixed costs and variable costs without generating a profit or a loss. Thus, the correct answer of 5,000 accurately reflects the necessary sales volume to reach the break-even point.